Unit 9
Transport and the Natural
Environment
TEC711S
By Immanuel Nashivela
Unit Outline
• On reading this unit, you will learn about:
– The relationship between the macro economy and the
environment
– The impact which transport has in terms of the
environment
– The main issues surrounding the carriage of freight and its
impact on the environment from a balanced perspective
– How economics can aid in our understanding of how
transport affects the environment
– The economic options which can be considered as a means
of addressing environmental issues.
What are externalities ?
• Externality is that situation in which the actions of one agent imposes a
benefit or lost on another economic agent who is not party to a transaction. It
could be Negative or Positive
• Negative Externalities (external dis-benefit) –: it is a cost or benefit incurred by
a party`s decision or purchase on another, who neither consents nor is
considered in the decision e.g Pollution (air, water and noise).
What is climate change ?
•
‘‘a change of climate which is attributed directly or indirectly to human
activity that alters the composition of the global atmosphere and which is in
addition to natural climate variability observed over comparable time
periods’’. UNFCCC (United Nation Framework Convention on climate change)
• “a change in the state of the climate that can be identified by changes in the
mean and/or the variability of its properties, and that persists for an
extended period, typically decades or longer”. IPCC (Intergovernmental
Panel on Climate Change)
• Namibia ratified the UNFCCC in 1995
• Namibia acceded to the Kyoto Protocol in 2003
• The Ministry of Environment and Tourism (MET) through the Directorate of
Environmental Affairs (DEA) is responsible for overseeing the coordination of
climate change issues in Namibia.
• 70% of the population of the southern African countries lives in rural areas
where their direct dependence on the natural ecosystem with its goods and
services is high thus impacts of climate change are more
• Their livelihood is largely dependent on agriculture
• Most developing countries, including Namibia are categorised as non-Annex 1
countries. According to the UNFCCC
• Non-Annex I Parties are mostly developing countries. Certain groups of
developing countries are recognized by the Convention as being especially
vulnerable to the adverse impacts of climate change, including countries with
low-lying coastal areas and those prone to desertification and drought.
• Namibia’s contribution to greenhouse gas emissions is insignificant. IPCC
• Namibia energy sector produced 2200 Gg CO2-equivalents in 2000 ,compared
to 1905 Gg CO2-equivalents in 1994 of which (50%) was contributed by the
transport sector in 1994
Air pollution
Total transport emissions as % of total emission
North
America
OECD
states
Japan
Nitrogen
oxides (Nox)
47
48
39
Carbon
monoxide
(CO)
71
75
na
Sulphur
oxides (Sox)
4
3
9
Particulates
14
13
na
Hydrocarbons
(HC)
39
40
na
Population exposed to road traffic noise over 65dBA
North America
OECD states
Japan
19 million
110 million
36 million
• LINKS BETWEEN THE ECONOMY TRANSPORT AND ENVINROMENT
• The macroeconomic concept of the circular flow of income relates to the flow of
income and expenditure between households and firms and can be used in order to
set the scene in terms of transport and the environment
• With respect to the circular flow of income households receive income for the factor
services they have undertaken and with that income they buy goods and services,
including transport.
The macro economy and the environment
•
The environment, transport and the economy can be linked in three ways as illustrated in
Figure above:
•
Natural resources : transport makes use of natural resources most notably oil which is in
fact the most dominant source for transportation (Chapman, 2006)
According to the International Energy Agency (2002) the transport sector accounts for 54
per cent of the primary oil demand in OECD countries.
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Waste products : including transport emissions, are generated by both households and
firms in the transport activities in which they are engaged.
The natural environment can be seen as a ‘dumping ground’ for waste products and one
that apparently comes at a zero economic cost.
Amenity services : it relates to the natural environment which provides households with
benefits such as recreational space and areas of natural beauty such as National Parks,
accessed predominately by the private motor vehicle
These can clearly be affected by economic activity and the related transport decisions
made by both households and firms in terms of transport emissions.
In conclusion we can agree that the link between transport activity and the environment is
unsustainable. This brings the question to what is really a sustainable transport ?
Sustainable transport can be defined as ‘the ability to meet society’s need to move freely,
gain access, communicate, trade and establish relationships without sacrificing other
essential human or ecological values, today or in the future’ (WBCSD, 2002).
Transport emissions
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Carbon dioxide: is combustion of fossil fuels and in terms of domestic transport
accounts for 23 per cent of carbon dioxide emissions
Carbon monoxide: is the product of internal combustion engines, and domestic
transport accounts for approximately 50 per cent of carbon monoxide emissions
Nitrogen oxide: is caused by combustion engines and other industrial, residential
and commercial sources that burn fuels. It can impact on the environment in a
number of ways, once emitted it can be transported many miles before being
deposited as acid rain impacting on forests, lakes, wildlife, crops and buildings
Particulates (PM10): also impact on health including effects on both the
respiratory and cardiovascular systems. It particularly impacts on asthma sufferers
Both benzene and 1,3-butadiene emitted from car exhausts are seen to be a
human carcinogen, which means it is an agent that is directly involved in the
promotion of cancer
Lead has historically been a major source of emission from motor vehicles and
industry.
Lead has an impact on health in terms of damage to the kidneys, liver, brain and
nerves. Exposure to lead can also lead to osteoporosis and reproductive disorders.
AN ECONOMIC MODEL OF TRANSPORT AND POLLUTION
• The vertical axis measures the costs and benefits, both to transport and society.
• The horizontal axis measures the level of transport activity and its related
pollution, which is assumed to be directly related to the level of transport
activity
• The marginal external cost curve (MEC) measures the additional environmental
cost of transport activity, in terms of air pollution, noise and so on
• Marginal private benefit (MPB) measures the additional benefits, in terms of
satisfaction received by the road user or airline passenger from undertaking
journeys, or road haulier or cargo handler in terms of profitable activity
AN ECONOMIC MODEL OF TRANSPORT AND POLLUTION
• If the transport user/sector is not constrained in terms of their level of
activity then they will consume or provide an amount equal to TA1.
• This means that the area under the MPB curve, represented by A + B +
C will be maximised.
• At that level of activity (TA1) however there are external costs in terms
of the impact of the emissions detailed above of B + C + D.
• The optimum level of pollution, therefore, is achieved at a scale of
transport activity TA2, where the MPB = MEC.
• If the transport user operated at a level of activity above TA2 then the
additional environmental costs would be greater than the additional
benefits accrued from undertaking the transport activity.
• This represents what is termed a ‘welfare loss’ to society, whereas at a
level of transport activity below TA2 the opposite is true. Here the
MPB is greater than the MEC and as such, activity should be allowed to
increase to TA2, in order to take account of these additional benefits.
Note further, however, that continuous production above level TA2 will
result in a significant negative impact upon the environment.
AN ECONOMIC MODEL OF TRANSPORT AND
POLLUTION
• The costs (MEC) in terms of airport pollution and so on are not
incurred by the same group.
• For example, aviation activity is likely to lead to profit for the airport
operator, but the costs are incurred by those who live in the vicinity
of the airport and who suffer, in particular from the noise and air
pollution, not simply from aircraft but also the surface access
traffic.
• These can be viewed as external costs since transport users or
organisations do not normally include them in their decisions as to
what output level to produce.
• The costs are actually incurred by third parties who are not involved
in the transport activity but who suffer from the ‘spill over effects’.
• In terms of our airport example, the first two parties are the airport
operator (the producer) and the airline and airline passengers (the
consumers).
Means of addressing the issue of the environmental impact associated with road
and air transport.
• Bargaining -The basis of this particular approach is that if property rights are
assigned then bargaining will occur naturally between the various parties that
suffer from or are the source of external cost, the externality, and the optimum
level of pollution will be the result
• The notion of bargaining is based on the idea that if property rights are assigned
to either of the two parties, thus giving the airline operators or airport the right to
pollute or to those who are affected by the pollution to clean air, then via
bargaining agreement will be reached so that pollution is reduced.
• If the property rights were assigned to the airline/airport operator then in terms
the level of transport activity would be TA1, with profit maximised and no account
given to those affected by emissions.
• It would however be in the interest of those suffering from the emissions to pay
the polluter if they agree to reduce their level of activity and thus their level of
pollution. In this situation the sufferers would pay as long as it was less than the
value of the pollution from which they would otherwise suffer.
• In terms of the Figure above therefore the sufferers may be willing to offer the
• polluters a maximum amount of C+D, which represents the total external cost
incurred by the sufferer as a result of the transport activity TA2−TA1.
• The airline/airport operator would have been prepared to reduce their scale of
activity from TA1 to TA2 for an amount no less than C, an amount which
• If on the other hand the ‘property rights’ were to
be assigned to the sufferers, who therefore have
a right not to be affected by aviation pollution,
that is a right to clean air or no noise, then the
• airline operators and thus the airport would have
to cease operation, thus being at point 0 in the
• figure, with no airline or airport activity or related
pollution
A tax-based solution
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This would involve setting a price which places a monetary value on the environmental costs
of transport using taxation and imposes these upon the polluter. Such a solution is likely to
reduce the demand to travel and therefore the environmental impact.
In terms of the economic model in Figure 9.4, then, if an environmental tax of t (known as a
Pigouvian tax, which is a tax imposed upon an externality) is imposed on the transport user/
operator/polluter it has the effect of shifting the MPB curve to MPB−t. The tax would be paid
on each unit of pollution and the transport operator would now maximise their marginal
private benefits at a level of activity equal to TA2.
If the transport operator undertook a level of activity between TA2 and TA1 then the benefits
received (in terms of profit) would be less than the amount of tax paid.
Advantages and disadvantages with the use of an
environmental tax on the transport user/operator.
• Advantages
– With an environmental tax, then, the road or air
transport user or airport/airline operator has to
pay a price for the pollution caused. As such, the
polluter has an incentive to reduce their level of
activity to the optimum level of TA2
– The introduction of an environmental tax allows
the transport user/operator to decide how they
will respond, unlike the use of a standard which
sets a particular limit.
Disadvantages
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There may be difficulties in establishing the optimum tax of t, although in reality
the aim may be to get as close to the optimum as possible. If the tax is
underestimated then it may lead to a problem.
There are often political difficulties when introducing a new tax, say with a
passenger tax on airline users. There may be resistance in that the belief is that the
tax will be raised above t in Figure once it is introduced - the tax being seen simply
as a revenue-raising measure.
• Tradable Permits The idea behind tradable permits is that polluters are
presented with a number of ‘permits’ which allow them to emit a particular
level of CO2. The number of permits which exist clearly limits the amount of
emissions. The permits are tradable in that they can be bought and sold to
other polluters who are participating in the particular tradable permits
scheme
• The basis of such a scheme is that those organisations who are able to
achieve a lower level of emissions are then able to sell their superfluous
permits to organisations that are not able to meet the emissions target set
and are therefore forced to buy permits to emit if they do not want to
curtail their activity.
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The setting of standards Polices such as the requirement for an annual vehicle
inspection for road trucks and private vehicles and vehicle exhaust emissions
tests or limits on noise from aircraft
Setting a standard of S1 would achieve the optimum level of transport activity
TA2 in the Figure If achieved this would result in the optimum level of pollution.
Clearly as with taxation it could be the case that the standard has been
incorrectly set. It could be too harsh, thus a point to the left of S1, or too lenient,
a point to the right of S1.
Not only does the standard have to be set correctly but the penalty for not
meeting the standard has to be established. The optimum penalty will be Penalty
1, for if a penalty such as Penalty 2 were to be set then the polluter would be
tempted to pollute up to TA3 because the penalty (if ever administered) would be
less than the level of additional satisfaction obtained between TA2 and TA3.
Technological change
• This can take a number of forms. First, transport emissions of
carbon monoxide have been reduced through technology-related
initiatives such as cleaner fuels with reduced carbon content,
cleaner, more efficient car engines and electrified public transport.
Catalytic converters fitted to petrol-driven cars have reduced
emissions in pollutants such as nitrogen oxide and benzene and in
the UK new cars are 10 per cent more fuel efficient, on average,
than they were 10 years ago
• Second, technological advances have improved the ways in which
individuals can make choices about transport modes, through in-car
information and real-time information at public transport stops.
• Third, through video conferencing meetings can be undertaken
without the need to travel. This is also another aspect of
technological change which leads to a reduction in transport
emissions.
Promotion of alternative modes of
transport
• This policy option involves encouraging
alternative modes such as public transport,
walking, cycling, rail freight and shipping. The
private car has the advantage of convenience
and flexibility whereas public transport tends
to be confined to fixed routes
• Trams are in many respects a more
environmentally-friendly, although expensive,
alternative to the private car.
• Promotion of alternative modes of transport – for examples Trams and cable cars
All this are done to reduce MEC